Crop Insurance time is upon us?
Very soon each of you will have to decide to invest or not in the 2017 crop insurance program. In many ways it seems unfair in that we have not even gotten a clear picture of the success or failure of the current year. I would not be honest if I told you that each year is a carbon copy of the previous. Weather is a challenge regardless of your personal views on the topic of global warming. I want to give some fresh perspective to you as to if crop insurance is a good investment (BET) or not.
I think we first must be realistic about the current times we are living in. While the economy is not surging people are for the most part doing quite well. We certainly do not want to see anyone go hungry. I have seen many statistics that suggest that here in the USA we waste nearly 40% of the food we produce. It is either not consumed or diverted at harvest or packing times for a multitude of cosmetic reasons. So this tells me that if our food is not virtually perfect it is discarded. Very high expectations.
We live is a fast paced society that only honors the very best. Second place is only famous if you work for Avis. Here are a few examples to illustrate my point. We have played 94 World Series.
Over those 94 years 35 have gone to 7 games. So 37% of the time some team is a loser because they lost one more game over the entire season. We have played 50 Super Bowls and outside of the Buffalo Bills how many fans can tell you the teams that lost those 50 Super Bowls? If you want a non-sport example how many people can name the Presidential candidate’s name that lost in the last ten elections?
I want to take you back to baseball for the last example. If in your major league career you fail to hit safely 65% of the time you will most likely be inducted into the Hall of Fame. That works out to hitting safely at a 350 batting average. Here is where life throws you a curve. As a grower if you were only successful with 35% of your crops you would be out of business, To produce a product that will evade that already mentioned 40% defect rate you must be striving for returns above 80%. To do less over time will mean a serious decline in your profitability.
The reality is that the bar is set very high. The reasons why a piece of fruit is discarded is enormous. I need not tell you all of them. The returns alone for the inferior product usually do not pay the variable cost of production. Here is where we need to take a fresh look at the wisdom of crop insurance.
One needs to understand that insurance is a calculated gamble. When you take out a fire insurance policy on your home you are hedging against it burning down in the next 365 days. Nearly all of us carry this insurance. Nearly every insurance company will take your policy. I looked it up. You have a .000069% chance that your home will burn down. I am not suggesting that you cancel your fire insurance. I simply want to illustrate the risk factor.
Some growers tell me that they cannot afford to have apple crop insurance. When I see the frequency that apple growers have been compensated for a “sub-par” crop, I tend to think it is a pretty good “BET”. This year for example you may have dodged early frost, hail and wind damage. Who would have thought we would experience the driest summer in 100 years. The expression “size does matter” takes on a whole new meaning.
I think if you are a commercial apple grower you need to seriously evaluate the risk you are taking to not have this insurance. The market place has virtually no interest in anything less than 100%. With so many factors out of your control I think you need to look at crop insurance in 2017 as essential as any other fundamental cost of production. If your risk of not producing that perfect crop were .000069% I would certainly agree you can skip it! The program is set up to assist you in staying in business. It is not here to get you a seat on the beach next winter. If you are serious about being a producer in this market driven economy I think you need to take advantage of this tool.